It is easy to lose sight of the important issues in pensions policy in the detail of the analysis of administrative charges, which is necessarily complex and involved. The most important issues in pension reform relate to financial markets. How large is the equity premium? How volatile are long-term equity investments? Are stock-markets currently over-valued? Compared with these questions, administrative charges are a second-order, purely operational issue.
This paper has tried to set out the options and the arguments in controlling the size of administrative charges and costs. The spectrum of policies is very broad. At the minimum, regulations allow any charge level or structure, but impose some disclosure requirements.
Some countries have chosen to regulate charge structures. Simpler fee schedules make it easier to compare different managers’ charges. A smaller group of countries has gone further and imposed ceilings on charge levels. Another approach to is to use alternative institutional structures, including competitive bidding to manage a small number of portfolios or even public management of a single fund.
Some analysts treat lowering administrative charges as the only goal of designing a pension system. I have tried to spell out the important trade-offs involved. Lower administrative charges can involve substantial constraints on individual choice of pension provider and of pension-fund portfolio and limits on competition. This conflicts with other goals of pension reforms and might adversely affect pension funds’ net rate of return.
of plans intend to comply with these regulations, allowing members to choose investments (94 per cent of schemes covering 92 per cent of members according to survey data: KPMG Peat Marwick, 1998).
58 See, for example, VanDerhei et al. (1999). Whitehouse (2000b) surveys this and other studies.
59 Australian Prudential Regulatory Authority (1998a).
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